Understanding and Evaluating Associateship Opportunities
Reasons Associateships Fail

Course Author(s): David G. Dunning, MA, PhD; Robert D. Madden, DDS, MBA

Reasons Associateships Fail

Dr. Eugene Heller wrote what we consider to be a classic article detailing ten reasons associateships fail.21 In this section of the course we summarize Dr. Heller’s ten reasons and added a few more. The focus here is particularly on a career track associateship leading to buy-in or buy-out.

  1. Not discussing purchase price before an associateship begins. The owner-dentist and associate approach the issue of practice valuation and the associated purchase price from opposite ends of a continuum. The owner-dentist usually prefers the practice be valued after the associate has worked for a period of time and be valued just prior to purchase. The associate typically prefers the practice to be valued before or soon after starting to work as an associate. Neither is right and neither is wrong, and there are strategies to reasonably discount associate “sweat equity” or increase a practice’s value based on growth besides what the associate adds to the practice. However, the ADA advises in its associateships book the discussion of valuation should take place prior to the associate beginning to work.22 Drawing from hundreds of cases, the statistic cited by Dr. Heller is staggering on this issue: in 75% of the cases, associateships leading to ownership will succeed when the purchase price has been established before the associate begins working. Even more startling, in 90% of the cases the transition to ownership will fail if purchase price has not been determined when the associate begins working. Clearly, it is in the best interest of both parties to discuss purchase price before the associate begins working.
  2. Not defining buy-in/buy-out terms/process. The more details of the future buy-in/buy-out that are discussed and committed in writing prior to or soon after the associate joins a practice, the greater the likelihood the associate will become an owner/buy the practice. This can include sections in an associate employment agreement and in a letter of intent to purchase, which can detail the process and timing of the purchase. In most situations it may be beneficial to include a timeline framework with some flexibility for the buy-in/buy-out (for example, between 6 and 18 months of the associateship). While a deadline date is needed (buy no later than), it is necessary to understand that practice dynamics and other variables may make it beneficial to both parties to execute the buy-in before the deadline date.
  3. Inadequate patient base. While experts may have well-informed and varying opinions about exact number of patients needed, most suggest 1000–1200 active patients (patients seen within the last 18 months for care other than emergencies) for EACH practicing dentist. At least 1500 to 1800 patients will be needed for a one-dentist practice to take on an associate to ensure sufficient demand for services to keep the associate busy. Hygiene maintenance appointments are a fairly reliable way to estimate the number of active patients in a practice (number of patients due for a maintenance appointment). Take the number of patients seen in a given six month period of time multiplied by a factor of 1.5. With almost all practices now enjoying software programs, a report query can likely ascertain rather quickly the number of active patients in a practice.
  4. Incompatibility of clinical skills between practitioners. This can be incompatibility in a number of different areas or ways: skill levels by different disciplines, clinical speed/pace (or lack thereof), types of treatment being diagnosed (dentists may see things differently), types of care proposed/provided, and even philosophy of treatment. For example, one dentist may believe that CERAC and CBCT imaging are essential features of a modern practice, while another does not. One dentist may want to provide care to all children who qualify for Medicaid, while another wants to limit this, if allowed by law, to only children within the county in which the practice resides. These clinically-based issues can result in a failed associateship.
  5. Not executing buy-in-buy-out when agreed upon. While related to item #2 in this section, it is definitely worth delineating by itself this reason for failure. Suppose the associateship agreement or letter of intent to purchase specifies a drop dead date of March of 2018 by which the associate must purchase the practice. The owner-dentist might be unwilling to sell at that point for a myriad of reasons; alternatively, the associate might not be willing to buy for many reasons. In any case, failure to execute by one of the parties, even for possibly “good reasons” may sink the deal.
  6. Inadequate or unfair patient assignment. Does the owner-dentist share existing and new patients with the associate? This is often a contentious issue that could be addressed in a well-crafted associateship agreement/contract. We have heard of horror stories in which the owner-dentist provides care for all the better patients needing higher-end fee procedures, and shifts less expensive preventative care and single restorations to the associate. In other instances, an associate might be assigned the practice’s entire roster of Medicaid patients, resulting in potentially lower compensation if being paid on the basis of collections. A specific strategy for managing this area of conflict is to have all new patients assigned to the associate (if the owner is already fully booked/busy) or having every other new patient assigned to the associate unless the patient requests a specific doctor for treatment.
  7. Unwillingness or inability of owner to “let go.” Here is the reality: a dental practice—patients, team members—is the owner’s “baby” so to speak. Being unwilling to turn-over challenging clinical cases to the less experienced associate, or being unable to take the steps needed to finally sell a practice and “abandon” patients and staff can be very troublesome from an emotional standpoint for the owner-dentist. Some owners may be in a situation where their financial assets have not performed as expected, and so this could also play a role in not being willing or fiscally able to sell and retire.
  8. Incompatibility of business and/or practice philosophies. If these fundamental values and principles clash, it is very probable that an associateship will fail. These clashes could encompass issues of third party insurance, integrity (“gray” tax write-offs, for example) and transparency or lack thereof (something very important to millennials). The owner may wish to avoid all dental insurance, including preferred provider “participation,” while the associate, eager for clinical experience and business growth of the practice, may instead wish to invite all preferred provider plans and patients into the practice. Remember the previously cited study emphasized compatible philosophies as a marker of successful associateships.2
  9. Incompatibility of personalities. It is sometimes said that, as a group, dentists don’t play well together when actually having to work in the same practice. Whether an accurate characterization or not, personalities often collide. For example, one dentist may be boisterous and expressive, and another may be quiet and reserved. It doesn’t take much of an imagination to see how this will conflict in a team business meeting. Similarly, as is the case of a majority of dentists, the owner-dentist may be highly structured in terms of schedules and organizations, and the associate may be spontaneous and “go with the flow.” Whatever the differences, personalities at combat may lead to a failed associateship.
  10. Conflicts among advisors such as attorneys. Professional advisors, including attorneys, potentially can sink an associateship before it has even started or after it has commenced. Contracts or agreements are incredibly nuanced legal documents, for example, and what the owner-dentist’s attorney believes is a reasonable and enforceable restrictive covenant, for example, may be in sharp contrast with the associate’s legal counsel. The brokers or other transition consultants may have very different opinions about the value of a practice in what is essentially an unregulated industry with multiple methods of valuation utilized in multiple ways. This is a proper place to remind you that an attorney and an accountant are your ADVISORS, but they should not be making your well-informed decisions for you. That responsibility is your professional expression.
  11. Inadequate interpersonal skills. An associate’s interpersonal skills appear to be as important as technical skills in successful associateships.2 These skills range from how to talk with patients successfully about treatment, motivating patients and staff, encouraging team members and managing conflict. If an associate has deficits in these types of foundational interpersonal skills, an associateship may be short-lived.
  12. Inadequate clinical skills. Just as weak interpersonal skills may portend a failed associateship, insufficient clinical skills may do the same. Commonly cited clinical skill issues for associates include: diagnosis, slowness and, frankly, procedures completed below standard (for example, compromised margins). While patients may have a limited understanding of an associate’s clinical skills other than whether a tooth hurts or not or a crown lasts long enough, an owner-dentist typically brings a wealth of experience in judging whether dental treatment meets expectations.
  13. Staff/patient conflict. While related to interpersonal skills, conflicts with staff and patients are worth mentioning as a separate line-item. An associate’s pattern of creating and failing to manage conflict with staff and/or patients will often result in a failed associateship, just as conflict often results in other failed or broken relationships in life.
  14. Family members working in the practice. This is a controversial issue to be sure. However, having spouses or other family members of a dentist working in the office often creates perceptions of inequity and often results in more stress potentially both in the office and at home. Suppose, for example, that a woman dentist’s spouse is also the office manager charged with patient assignment within the office. The scenario is potentially rife with conflict. If the associate believes that patients are not being equitably assigned, to whom does the associate turn to work this out? The owner-dentist and office manager have an inherent conflict of interest and may not be able to overcome biases.
  15. Work Ethic. Although based only on many anecdotal reports, there may be inconsistencies between the work ethic of the owner-dentist and that of the new associate. In certain cases, the owner dentist may perceive that the new associate lacks the drive, motivation and work ethic to put in the quality time to build the practice and provide the best dental care.